Hayek was right. Twice.

[Anonymous]

Mark Popescu wrote:

>There's no such thing as "efficient level", except in the tautology "the
>market outcome is always efficient".

There is more to it than a tautology.  Ignoring market failures (such
things as public goods and externalities), markets are efficient in the
sense that they produce a Pareto optimal outcome.  Pareto optimality is
a state in which you can't make everyone better off by rearranging who
has what; you have to make at least one person worse off if you benefit
anyone else.

A Pareto nonoptimal state, which is what you get with public goods,
is a condition where you could redistribute wealth and resources and
make every person happier or at least no less happy.  In the case of,
say, recorded music as a public good, the market will not produce
enough music relative to a Pareto optimal state.  Some people would be
willing to pay for more music, and this money would be more than enough
to pay musicians to produce that music.  So there is a redistribution
which would make many people happier without making anyone less happy.

But this redistribution won't happen, under market conditions.  There is
no mechanism to force people to pay when everyone can get music for
free.  And people are not willing to make sufficiently large voluntary
contributions to fund the musicians because they know others are going
to benefit just as much without paying a dime (the free rider problem).
Detailed analysis supports the conclusion that, in general, markets
under-provide public goods relative to a Pareto optimal outcome.

Therefore it is clear that it is quite meaningful to investigate whether
markets produce efficient or non-efficient outcomes in various situations.
There is no tautology involved.